Give Me That Old-Time E-Mail Religion

Every reader of this publication knows the value of good data. Anyone involved in direct marketing for any length of time soon gets the database religion. A comprehensive database with flexible options can make all the difference in the profitability of your marketing programs.

The value of good data is just as important, if not more so, for e-mail marketers. Building a quality database is key. Still, there are some important distinctions in how data are used and how they are evaluated, and marketers should take these differences into account.

Mining Your House File

In traditional direct marketing, we mine our customer lists and segment them to maximize the return on investment from a campaign. There are two factors that represent a major difference between traditional marketing and e-mail marketing: the recency of the name and the cost in the mail.

Typically, companies use the RFM model as the basis of file segmentation. And recency becomes a key determinant in how deep marketers can go in mailing their house files. The more recent the customer activity, the more likely that response will be high. The longer it has been since recipients have made a purchase, the less likely it is that the list can be profitably mailed.

Each mailer plays with different scenarios in deciding whom to mail, but there is always a definite cutoff point beyond which it would be unprofitable to mail.

Why? It's all about ROI, and there is a substantial dollar investment in mailing to customers. When the cost in the mail is between $250 and $750 per thousand, response rates are critical to success. We know that the longer it has been since a customer made a purchase, the lower the response rate.

The same cost constraints make it difficult for traditional direct mailers to push personalization and customization to the limit. While testing is imperative, marketers often are restricted by the costs of creating and producing new test packages, short-run printing penalties on smaller print runs and higher postage costs for smaller mailings. A good example would be catalog mailers: It is generally cost-prohibitive to think about creating custom catalogs for select customer groups, and at best, a cataloger will include a wrap on the catalog to provide some customization of content and message.

Cost often dictates the frequency of mailings to customers. If we could, we would all like to be in constant communication with our customers, but physical mailing costs often preclude this activity.

Same Data, Different Cutoff Point

With e-mail, the profitability dynamics shift dramatically. Recent data from Forrester Research in January indicate that aggregate costs to communicate with customers via e-mail are $5 per thousand. Even if the actual costs for a specific e-mailing were four times that amount, there is a major difference between $5 to $20 per thousand and the $250 to $750 per thousand seen in traditional direct mail.

The old rules can be challenged: Instead of choosing to mail only as deep as the six- or 12-month buyer on a list, many marketers can go much deeper. Many mailers can mail profitably to 24-month buyers and maybe beyond because costs are next to nil.

Don't get me wrong. In e-mail, it is still all about looking at RFM. At the same time, RFM can mean different things to e-mail marketers.

Clicks matter. Some recipients may not have bought recently, but you may be able to see that they were interested enough in your marketing proposition to click through to the Web site and take a closer look at the offer. Someone who looks and does not buy will still not be as valuable as someone who purchases, but if a recipient takes an action that the direct marketer can track, it is a measure of success. Direct marketing is, after all, all about getting people to act on what they receive.

Contact frequency changes. Because e-mail costs are significantly lower, marketers can develop regular communication programs. Many marketers are moving to weekly promotions, and several companies are considering the possibility of multiple daily promotions to selected portions of their files. As marketers increase their contact frequency, they are moving very carefully. They are watching to see if their click-throughs and purchases decline. Another key barometer is whether the opt-out rates remain stable. If they begin to increase, there's a danger signal that the marketer is over-communicating.

Separating the E-Pros From the Dabblers

The winners in e-mail marketing are going to be sophisticated marketers who use the capabilities of e-mail marketing to the fullest extent. Just as in traditional direct marketing, the use of effective database and segmentation principles will always be the cornerstone of success.

If a recipient always clicks on a particular kind of offer -- always choosing sale items or clicking through on the R&B selections from a CD outlet or the detective novels from a book seller -- marketers can use this intelligence to further customize and personalize future offers. To do so is not easy; it means setting up a strategy at the outset to be able to monitor and capture usable information. You'll need the ability to look at your e-mail campaigns over time and be able to identify -- as in the previous examples -- all those who looked at sale items or R&B CDs or detective novels. You then can segment your file based on these behaviors for ongoing communication.

Obviously, there should be an ongoing plan to develop discrete campaigns to smaller groups that are customized and personalized to customer needs. This change in mind-set means more planning for the marketer: developing multiple messages, rather than adopting a one-size-fits-all approach. But in the end, the more robust the segmentation strategy, the deeper marketers are able to go into their files and the closer they come to creating real one-to-one communications.

Yes, this is more work. But there's some good news to report. Several of the e-mail deployment companies are offering a feature called "dynamic content generation." Simply put, the marketer establishes a series of rules based on database elements and creates content around each of the rules. The messages can then be assembled on the fly and delivered.

For example, let us assume a general cataloger wants to drive traffic to its bricks-and-mortar stores to introduce a summer line of men's and women's clothing and include a special offer for previous buyers. In this instance, ZIP codes will be used to select customers who are within a 30-mile radius of each store location, and gender will be used to determine who hears about men's or women's clothing. Six-month buyers will get a 10 percent discount while those who have purchased between six and 12 months will get a 5 percent discount. Each recipient gets a personalized and customized message based on who they are, where they live and how recently they purchased.

Identify your advocates. E-mail marketers are developing programs to reward evangelists. They track pass-along rates to find those customer segments interested enough in a product or service to forward messages to friends or colleagues. When planning an overall e-mail strategy, good marketers may want to segment their lists according to pass-along behaviors. Traditional direct marketers would kill to be able to get the same information and act on it.

Good marketing databases include a promotional history on each customer, and the same holds true for e-mail. Marketers want to measure their clickers, their buyers, how much money was spent, their evangelists and a customer's activity over time. There are now campaign management systems in place that make it easy to query your customer base to see how often a customer has been contacted and to measure whether clicks and purchases are declining based on the number of contacts. Results are available in real time, and it is easy to select discrete segments for future promotions.

Data Enhancement

As direct marketing activities increasingly move online, we'll see the application of other tried and true database techniques. E-mailers will want to enhance their e-mail lists with traditional data overlays to provide additional segmentation and customer analysis opportunities. Think about the potent combination when marketers are able to marry full offline data with behavioral data. Modeling, scoring and profiling will be taken to a new level.

Into the Future

Several pundits have predicted there will be a glut of e-mail activity in the second half of this year, which will result in declining click-through and transaction rates. The losers will be those companies that haven't embraced the database religion. The winners are going to be those companies that have developed an e-mail relationship with their customers and who keep their messages to the customers relevant. That relevance is going to be gained by applying all the tried and true principles of database marketing.

The winners are more likely to be traditional marketers who are embracing the Internet. They understand database marketing and are applying established principles to the new communication channels. Pure e-commerce dot-coms can certainly react, and the best advice I can give them is to hire good database and direct marketing people. They can be your secret weapon.

Clearly, there is still plenty of room in the wired world for the database-marketing zealot.